The architect of an ever-increasing flow of state tax revenues to help send students to private and parochial schools said he's willing to consider a cap now that the diversion has topped $74 million a year.
Senate President Steve Yarbrough acknowledged that he has been a staunch defender of the tax credits originally available only to individual taxpayers.
The Chandler Republican was the sponsor of a major expansion of the law, allowing corporations to give what they would otherwise owe the state in income taxes instead to organizations that provide scholarships for the private schools.
Most significant is that Yarbrough demanded – and got – an annual escalator clause, boosting the amount that corporations can divert by 20 percent a year.
For this year, the cap is $74.3 million. That rises to nearly $89.2 million next year, $107 million the year after that more than $128 million the following year.
And there is no limit.
To put that in perspective, corporations, already benefiting from a multi-year reduction in tax rates, will pay only about $368 million of the state’s $9.8 billion in expenses this year.
That 20 percent year-over-year increase in allowable credits, unless capped, would swallow all of that up by 2027.
“You don't have to be a mathematician to have determined that a 20 percent escalator that is compounding, at some point in time is actually going to exceed the totality of the corporate income tax,” Yarbrough told Capitol Media Services.
The scholarship program predates – and is different from – vouchers that provide state funds directly to parents to pay for tuition and other expenses at private and parochial schools.
With scholarships, donor organizations determine the dollars given to any student; the amount of a voucher is limited.
Yarbrough’s change of heart came as he announced Thursday he no longer will be executive director and general counsel of the Arizona Christian School Tuition Organization.
That’s a position he has held since the organization was first formed 20 years ago, when lawmakers – at the behest of his group and others – first opened the door to individuals to divert their tax dollars to groups like his that provide those private and parochial school scholarships.
Yarbrough and his family have benefited from the credits.
The Internal Revenue Service filings by the ACSTO show that out of the $21.3 million the organization collected in the most recent year, Yarbrough was paid $98,241 in annual salary plus another $27,840 in what he said is the cost of fringe benefits and life insurance.
On top of that, the organization paid another $659,300 to HY Processing, a firm owned by Yarbrough and his wife, Linda, to handle the accounting and paperwork for the scholarships.
ACSTO also currently rents space in a building owned by Yarbrough.
A spokeswoman for ACSTO said she did not know the amount of the lease. But the IRS form lists occupancy costs of $49,180.
Yarbrough said his sponsorship of expanding the credits to also include corporations was based on his personal belief that more dollars mean more education opportunities for students who otherwise could not afford to attend a private or parochial school.
He also said he had nothing to gain from his sponsorship of the corporate tax credits, saying the more than $155 million ACSTO has received in donations since 1998 comes only from individuals.
Yarbrough’s retirement from ACSTO – and his apparent change of heart – could provide the best chance in years to actually rein in the credits before they further reduce state revenues.
Rep. Heather Carter, R-Cave Creek, and Rep. Doug Coleman, R-Apache Junction, have sponsored legislation for at least four years seeking to limit the annual increase to a more reasonable number.
“This inflation sticks out like a sore thumb,” Carter said. More to the point, “it’s not sustainable,” citing the same compounded data that shows corporate taxes drying up at some point.
Yarbrough’s willingness to cap the credits does not temper his defense of allowing organizations like ACSTO to keep up to 10 percent of donations by both individuals and businesses for administrative expenses.
That could provoke a separate fight. Coleman wants to cut that figure in half.
Yarbrough, however, said just doing the paperwork on scholarships – the part now done at ACSTO by HY Processing – eats up about 3 percent of what comes in. And he said another 2 percent goes to the companies that process the donations paid by credit card.